E324 | Beth Johnson on What Most Investors Get Wrong About Passive Income – PTNC Know Your Speakers

On this episode of the Paper Trail podcast, I host Beth Pinkley Johnson as a guest who Great conversation.

I've known Beth for a few years.

Beth has been in the private lending space for over 10 years.

She's wrote a book on bigger pockets called Lend to Live, has a awesome private lender community where she provides a lot of content, education and direction for private lenders.

There's the institutional side and then you know, there's individual private lenders and she really fills that gap to getting people off the ground in that private lending space.

And she is going to run the, I'll call it the curriculum at the Paper Trail Conference on private lending.

So I've mentioned on other episodes this is the one event that's out there that brings all the note industry together from private lending to seller finance to non performing loans.

All of that is going to be in one place September 18th to 20th in Chandler, Arizona.

Make sure to get your tickets@paper trail conference.com.

hey Beth, how are you today?

Doing well, thank you.

How about you Chris?

Good, good, good.

So it's been a long week as we were talking before recording of some of the wonderful journeys I have dealing in the non performing note side where sometimes your days go by, go like roller coasters where Beth deals in the private lending side which is you know, even more lazy riverish than you know, the non performing side which we'll talk about today.

So let's just kind of dive right into it and tell people a little bit more about your backstory in regards to getting involved in the private lending space.

Sure.

I mean I think like most private lenders I got into this space on accident.

It's not like we all joined bigger pockets and I like I should do private lending and non performing loans.

Like that sounds really cool and sexy.

So we end up starting out and flipping and I've done some buy and holds and just kind of landed in private lending where I am now running a private lending business with my husband Matt Flynn.

We own a small boutique private lending business in Washington.

We just lend in a handful of markets and just kind of got bit by the bug.

It's just a little bit easier to do loans and still maintain a work life balance and be there for my children and not really have to race off and deal with tenants or you know, short term rentals in the middle of the nights with lockouts and can't find the hot tub, you know, turn on button, whatever.

So our, you know, we've been doing private lending for about a decade now and I Help facilitate loans for other private lenders as well that want to be a little bit more passive in it too.

Too.

No, that's awesome.

And as you mentioned, most people stumble into this space and you mentioned like Bigger Pockets, which you've also written a book for them, right?

That's true.

That's true.

Yep.

So I know that book comes highly recommended to anybody getting involved in a space in Bigger Pockets.

When somebody asks about that, people always tag Beth 10,000 times with the information on that book.

So you've been in the space 10 years.

Curious.

What's something about the journey that you've gone through that maybe most people don't know about?

You could be a win, a pivot, a loss, you know, just curious.

Interesting fact about, you know, the space that you've been in the last 10 years.

Oh, goodness, I don't know.

I mean I.

We started this out as a passive hustle.

I've talked about it a little bit, but yeah, really for me, I grew up in a real estate as a side hustle family.

My dad was a wood shop teacher.

We just did it on the side.

So did I ever find myself wanting to run a private lending business or a real estate adjacent business?

No.

So I think that what people might be surprised about is that I didn't really want to run a business and I'm very happy with what we've created now.

However, it has come with a lot of challenges and so part of the impetus to writing the book and helping educate others in private lending was because I really struggled early on with having this turn into a full fledged business with investors capital that I felt very responsible for managing.

And there just really wasn't a way to navigate it gracefully because I was learning the ropes all on my own.

So I think it might come as a surprise if the people think that I'm, you know, pretty competent in this space.

I talk about it a lot, but I, you know, at the end of the day, I'm an accidental entrepreneur.

Didn't really want that.

Didn't really want to be out there publicly speaking and kind of being the face of private money.

But here I am right now and.

It'S interesting because people come to me and I'm curious, people come to you as well and like, well, I didn't go to school for finance or I didn't go to school for this or you know, I don't have this type of background.

And, like, I don't know if I can do it.

And I always tell them I'm not sure anybody I really know has a true finance background.

That is, in this space, there's.

I'm sure there's people and stuff, but, you know, it doesn't matter what your background is.

It really boils down to sets of principles, philosophies, and understanding of the space where, you know, it's a space that takes time to learn.

But I also will say it's not rocket science.

Would you agree?

It's not.

I mean, it's really common sense in connections for me.

And you're right, I'm not a numbers girl.

I'm a words girl.

This is why I wrote a book.

Very much catered to my expertise, and I'm the gal that doubled down on a nine and a three at a blackjack table.

I really kind of suck at numbers, but that's why I partner up with my husband, who's like a Rain man when it comes to numbers, and it really just gels together.

And I'm the one that's really constantly thinking about what could possibly go wrong.

And that's where the common sense comes in.

And creating connections so that you are resourceful enough that if I do have a question, then I can come and hit you up too.

Right, Chris?

And just ask for a second opinion and how I might want to work out a loan that's in default.

But it's not really knowing all the answers.

It's just seeking it and being curious and then making sure that you're surrounded by people that can help.

Help lift, you know, when you need to.

Yeah.

And like you mentioned, reaching out to others and having these conversations.

One of the interesting things I truly find about this space is the resources available to people.

Unlike traditional real estate, which I feel is very cutthroat, because I spent many years in that business of everyone chasing deals and people trying to, you know, get in front of somebody for a deal, wherever the case may be.

The lending space is about relationships, but it's also about a lot of collaboration.

And I think part of that is because most of us see an abundance of deals and we have certain criteria or buy boxes, like you mentioned, there's certain states you invest in, certain states you do not invest in.

So when people see things that don't fit their criteria, they're very willing to provide that information or offload either that deal or assist somebody if they're in trouble on a deal or need an attorney or whatever the case May be.

Do you find that pretty common around what people you work with as well?

Yeah, I mean, I think like with other aspects of real estate investing, there's some cutthroat parts of private lending and note investing.

I think you know that too.

But those that have an abundance mentality really know that if they're going to provide the most value to their clients, their borrowers, if it doesn't fit for their buy box, then they need to find and have resources available to help make sure that they don't have to say no to that borrower.

So the ones that really do it right and provide full value to their clients are the ones that are thinking, hey, I need to make sure that I have a strong connection and network so that if this isn't right for me or it's not the right market or I don't have enough capital available, then I can call a handful of people on my Rolodex or my cell phone and make sure that I can place them and so they'll come back to me time and time again.

So.

But the hard part about all that is that private lenders are, it's only because speakeasy is how I typically referred it to because we eventually just come into it by accident.

Most of us are invest in notes by accident.

And so trying to find those other peers to be able to connect with that truly want to collaborate can be, it can be an uphill battle at first when you're first getting started because very few people are coming out saying I'm a private lender.

They're just saying like, hey, I'm a wholesaler and I need to connect with flippers and things of that kind which make it rather difficult to establish connections early on.

No, you hit the nail on the head with that.

And because there's some very large institutional providers that you know, do things in the space and like on the note side, again, I stumbled upon it by accident but when I was getting started it was hard to find people again that truly were in the space.

Because you have some people who might be brokering certain loans or like, but people who are really in that day to day doing it and trying to network and just collaborate because it's, it's a small niche industry where it boils down to it, which is one of the reasons why like for example, you know, the paper trail conference that you know, we're hosting and you're, you know, being a big part of is to bring everybody together to network and get to know other people along with the content and education you're going to get, but also really building those relationships for the long term for people.

And one of the questions I was going to ask you is, you know, as part of, you know, your involvement, what's, you know, what are a few things you would love for people who attend the conference to get out of it?

Well, I want them to get educated, right.

I mean, I think that there's enough out there in social media, YouTube, to really whet your appetite to want to invest in notes to create a passive source of income.

These are just some of those buzzwords that are out there, but there's not a lot of really deep education on it.

And so I find that when I'm working with new and aspiring private lenders and note investors, they just, they're, by the time they say yes, they're ready to fund the first deal that comes across their plate.

And, and I will both say that we know that like that's absolutely not what they're supposed to do, right.

And so really creating that planning and being at an event like this where you can get a really wide swath of education and workshops across all three non performing loans, seller financed loans, how to find and fund a private money loan, there's a lot of synergies between all three and quite frankly, it's not mutually exclusive either.

And so to be able to be exclusive, exposed to all three different facets of passive investing and note investing I think is really incredible because depending on your station in life, you might choose to want to do note investing.

And depending on your risk tolerance or how autonomous you want to be and controlling you need to be on that, you might want to go and find your own loan and fund it yourself just because you want to make sure that you have that initial connection with the borrower.

Everybody comes at it from different perspectives and different stations of life.

And so that's what I think is really unique about this conference, is that it will really give you some deep exposure and help you create a lot of connections with people who are already in that space to help you make a really well rounded decision on where you want to place your capital and how.

And perfect example was we earlier this week received a pool of assets from somebody where you had to buy was eight assets, so you had to take all of them down and reviewing them.

One of them was a rap note and I'm like, wow, I have never seen a rap before.

And you know, I bought, you know, hundreds and hundreds of loans and first thing I did is like, I know this person I, you know, had them on my podcast previously who has done wraps and I reach out to him, got on the phone and, you know, pulled up, you know, the zoom and went through the, the deed of trust and just tried to understand kind of the logistics of it.

It made sense, but there was nuances that I just wanted to make sure I understood in regards to the whole process.

And if I was just getting started out like when I did almost 10 years ago, I would have just basically been like, nope, I'm not even going to consider any of these because, you know, one loan in that thing, like, could kill me because I don't know, you know, and I'm an engineer, so I need to know everything, of course, and it's like, I don't know it, so I would miss some of these opportunities.

But I think a, like you said, getting that education component to it, but also understanding the breadth, the depth of everything and knowing those people, that's half the battle a lot of times is if you don't know something, it's knowing who to go to to get that.

Answer and being exposed to the potential pitfalls up front before you get started.

Right.

And you and I have talked about like, one of the key sessions I want to have is about taking the fun out of funds.

There's a lot of hype about starting funds, there's a lot of hype about wrapped notes, there's a lot of hype about second liens, and there are great aspects to those types of investment strategies.

And there's also a ton of concern about it as well.

Right.

And so what I want to make sure happens in my sessions, and I know that you and Fred and Tracy do as well, is to ensure that we're really giving them a well rounded picture so that they understand what are some of those key considerations you need.

You certainly might decide after that that you want to proceed forward with it.

But what are some of the generalities and some of the foundational things that you need to be aware of before you get started?

Because oftentimes, note, investors and private lenders, they're ready to pull the trigger right away.

And what they lack is perspective.

Perspective on different deals, perspective on legalities, perspective on how it should be structured and what the protection measures are.

And you can only get that by going and seeking out the education, talking, others being at conferences like this so that you really can gain exposure before you place your money down.

Because most times private lenders I see, they're funding the first deal that comes across their plate and it's unfortunate because generally they run into some areas that are kind of scary.

Most of them don't necessarily lose all their principal, but they do lose sleep at night.

And so it's good to be able to get out there and just learn as much as you possibly can before pulling the trigger.

Yeah.

And like you mentioned, you know, with these things, you know, the education component too, a lot of people will take some education and a lot of it sometimes is marketing based.

And they'll go on this weekend and they'll learn.

They're like, I'm gonna go, I'm gonna go buy it.

And they don't know what they don't know.

And one of the things that you know, I think is great about this conference is the fact that the people who are involved not only are spending the day to day in the business, but they're not afraid to share the good, the bad and the ugly.

Because a lot of times all you see, sometimes depending on, you know, you got to make sure you affiliate with the right people because some people only share the good side of things.

And it's like, oh, it's risk free.

You'll make all this money, you can do this.

And if you just follow my three step program, you know, you're going to make all this money.

And it's, you know, that's far from the truth in many instances because there's a lot of due diligence and just a lot of intricacies involved in this space that people gotta be aware of.

Well, yeah, and you and I see a lot of those.

Right?

Because we're out there and trying to educate others and talking to a lot of people about our space.

Heartbreaking stories come across our plates time and time again and it's hard not to develop compassion, especially as stewards managing other people's capital.

I feel like you and I are kind of that same we have, that possess the same value in that we just don't like to see people, good people who have worked really hard to earn that capital lose it because they just trusted somebody.

And that's human nature, is to trust them.

Right.

But I think that getting out there and making sure that others really ask the right questions and have a healthy dose of cynicism is kind of what you and I are about.

Right.

Because we just don't want to see people make poor decisions because it's really hard to come back from that now.

I saw somebody reach out to me last night and they haven't bought any real estate yet and they hired an Attorney.

An attorney recommended that they set up a wyoming LLC with three California LLCs.

And I'm sitting here like, you know, I put my head down and I'm like, how much real estate do you own?

Or, like, nothing.

We're just getting started.

And I'm like, you just spent.

I mean, California LLC is like 800 or $900 for every LLC every year.

So I'm like, you're spending $3,000 a year just on, you know, a corporate structure that if you're just getting started, you don't need.

Like, you know, and sometimes, again, it's this person went on Google and.

Or saw a YouTube video, and this person looks very trustworthy.

And then, you know, but they don't, you know, do that next step or, you know, reach out to people and ask the question or a lot of times people ask that, unfortunately, ask that question too late.

And it's sad when I hear these stories of people who, you know, go through some of these losses.

I had someone reach out, and again, we run a fund, and somebody, one point in time made a comment to us, hey, I can invest in a fund that matches your fund.

But basically they might.

Well, you pay in a year, they pay in a quarter.

And I was like, well, I don't know how they can do that.

I don't know any, you know, I'll say note, investing, lending fund, or anything that can offer, you know, 30 to 40% returns.

I just don't know how they can do it.

So they must have some magic secret sauce.

But I'm surprised they're asking for money from a regular investor and they don't have some Wall street company basically knocking down, bulldozing down their door, and six months later, it's, you know, on the news of, you know, a complete scheme where people have lost, you know, pretty much everything.

It's just unfortunate when you hear people go through those stories.

And again, that's just on one side of things, but every part of investing is about kind of due diligence.

So 100%.

I just did a local presentation about how not to get to get scammed and had to, unfortunately, use a number of those examples.

I mean, in the markets that we're in, we don't see a lot of these Ponzi schemes come out locally, like on American Creed or in the news.

They seem to be isolated in certain.

Certain states and markets quite a bit.

But it does happen.

And unfortunately, you know, honestly, sometimes it's just a simple Google search with their name, and we actually pulled up somebody Locally and, you know, put their name.

A lot of good stuff comes up.

And he has started entity after entity does a lot of training.

Does.

Brings a lot of people in.

Just a lot of.

I.

You can't even call it scams or fraud.

It's just negligence.

And ignorance can lose you money too.

Right.

They don't have to be nefarious in what they're trying to accomplish or take your funds.

It could just be stupidity.

And if you put this guy's name in and afterwards then put fraud or scam or Ponzi, then all of the indictments, then all of the allegations came up and it was just a simple search, you know, and so some of those things that just need to be taught.

It's unfortunate that we have to sort of burst people's bubble, but I think it will help them in the long run to know that, yeah, bad things can happen in any investment, and we just want to make sure that you're doing it as safely and securely as possible.

Yeah, it's funny you mentioned that, because I know of an investor who runs a fund and they were trying to, you know, expand and get a line of credit.

And basically there's public records in regards to the lawsuit, high level.

They essentially had to prepay like a year's plus interest as part of trying to get the loan.

They wired all of this money, which was millions, to this entity that was going to give them the loan.

And if you would have just googled the three people or two people were involved in this entity, they have been, you know, fraudulent in many different transactions in the same exact manner.

And you know, one thing, and I'm not saying this in this case, but I'd say this overall in general with anybody.

Don't let your ego get in the way.

You know, don't pretend you know it all.

You know, listen to your attorneys, do, you know, do the diligence and just, you know, make sure that you just talk through everything with, you know, people that, you know.

And, you know, this person, I believe, ended up getting it resolved or whatever the case may be.

But it didn't, I'm sure, happen overnight and took a very long time, which I can only imagine how many sleepless nights.

But like you said, a quick Google search before any of this would even started, it wouldn't even have been down that path.

We had somebody reach out to us about a loan recently that we would potentially keep on our balance sheet.

And person appeared like very great background.

But then again, did a Google search on this person and they had some criminal history that was pretty nasty.

And it's like, this isn't the type of person I kind of want as a borrower.

So I don't even think it's ego.

I think a lot of these people just really want to believe.

Right?

Yeah.

It's that fear of missing out and that confirmation bias because everyone's telling you, yeah, this is great.

And taking everything at face value rather than doing your due diligence, which honestly just takes a lot more work.

Cool.

Well, Beth, as we wrap up this episode again, we want welcome everyone to please sign up for get your tickets@papertrailconference.com September 18th to 20th in Chandler, Arizona.

Beth is moderating and speaking on many panels there.

Last question I'll ask you is without giving away the entire secret sauce of everything you're going to be teaching people, what's something that you want them to definitely walk away from after the conference?

What do you want them to feel, learn or think differently about attending the conference?

I want them to feel as though they have a strong confidence and competence level in becoming and growing as a private money lender and really being in tune with what their why is why they want to get into it, whether that's being an active business owner or doing it as a passive source of income.

And then to create some connections because private lending really is a team sport.

All note investing is.

So creating some connections that you can call down on after the conference is over to continue your education and your curiosity and your learning beyond those really packed three days is going to be incredibly important and that's what I hope they get.

Great.

If people want to reach out to you before the conference, what is the best way people can get in touch with you?

Well, you can find my contact information on lend to live.com that's lend the number two live.com I'm also on Instagram @lendtolive Beth and I'm on Facebook as Beth Pinkley Johnson.

Great.

Well, Beth, thanks for coming on today and I look forward to seeing you in a few months.

Likewise.

Thank you everybody.